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SCMP Reporter

The alteration of June's figures proves that counting China's active stock traders is anything but an exact science

With the stroke of a pen earlier this week, China's securities market watchdog wiped 1.08 million stock-investor accounts off the total number for June.

The revision spared China from having to report its first month-on-month drop in the number of stock-investor accounts since January 1998 - from 70.67 million in June to 69.71 million last month.

The move by the China Securities Regulatory Commission (CSRC) - apparently alarmed by a report calling attention to the decline - was at the same time comical and revealing.

In a market where the CSRC often confuses its regulatory role with that of babysitting brokerages and supporting indices, the government has indulged in the exaggeration of stock-investor accounts to delay politically difficult reforms or dodge blame for ill-devised policies, some analysts argue.

The number of stock accounts, which have more than doubled from the 33.87 million reported in January 1998, has often been used to showcase the leaps  made by China's stock market over its less-than-15-year life span and the great potential of its securities industry.

Due to last month's technical upgrade at the Shanghai and Shenzhen stock exchanges - the CSRC's usual sources of information - the  watchdog obtained the June figure from mainland brokerages, hence the discrepancy, explained a CSRC official.

Many analysts, however, have found declining stock accounts easier to explain.

'It reflected the stock market's diminishing appeal to investors,' said Wang Yiguo, a Shenzhen-based analyst at China Southern Securities.

'After two years of a bear market, the market can longer attract new entrants,' he said. 'The falling share prices have exposed the risks of the market.'

Many investors had suffered huge losses after  share indices shed more than 30 per cent since June 2001, said Xiangcai Securities' Shanghai-based trader Tang Yong.

People who still had money on hand also chose to stay on the sidelines as long as market volatility lingered, he said.

Whatever the reasons, official stock-account numbers hugely inflate the actual number of investors.

To begin with, all investors who wish to trade stocks on both the Shanghai and Shenzhen exchanges must open two separate accounts,  resulting in widespread double counting.

And as recently as 21/2 years ago, stock manipulators - including or assisted by brokerages, underground fund managers and corporates - frequently opened multiple 'ghost' accounts using borrowed identities to hide their true positions while rigging share prices, analysts said.

During China's largest stock-manipulation trial last year, it was revealed that 1,565 accounts were used by two masterminds to rig the  stock of Shenzhen-listed China Venture Capital, whose share price soared by more than 370 per cent in the year to February 2000.

Other accounts were used to subscribe to initial public offerings, which remain a sure bet on profit due to their artificially low valuations, allowing buyers to sell out quickly to lock in profit, according to a new book, Privatising China,  co-authored by Carl Walter and Fraser Howie.

Mr Tang and Mr Wang estimated that only between 20 per cent and 30 per cent of stock accounts remained active, a result of the protracted bear market and  fraud busting.

That has been supported by a recent Shanghai Securities poll of three of the 10 largest securities firms in the mainland, which estimated that active accounts made up 26 per cent to 28 per cent of all brokerage accounts.

'The likelihood is that there are no more than five million to 10 million actual holders of shares and less than one million active traders, and this is before adjusting for 'ghost' accounts,' said Walter and Howie.

Yet the government appears in no rush to end the myth that China has a wide stock-investor base  dominated by retail investors, hence the necessity for frequent market intervention to avoid widespread social unrest.

This argument has been used by some to justify the  October 2001 shelving of a four-month-old plan to sell down state holdings during all domestic share offers to finance the country's under-funded social-security system.

State-owned brokerages and corporate stock investors are often the more direct beneficiaries of such intervention.

Perhaps the CSRC is wary that declining stock-account numbers might give fresh ammunition to detractors who have accused it of having triggered the bear market with a crackdown on market fraud and the short-lived state share sale plan.

numbers game

The CSRC revision, officially attributed to a change in data source, wiped out 1.08 million stock-investor accounts

The CSRC claims there were 69.71 million accounts in existence in June

A Shanghai Securities poll suggests only 26 to 28 per cent of accounts are active



CSRC revision deletes 1m accounts